The futures trading game can be a rough one, with many new traders being knocked out in short order. It is important to have a trading plan before starting. Additionally, one must try to avoid all of the most common pitfalls that new traders tend to fall into.
While new traders have the disadvantage of inexperience, there is no reason they cannot be successful in achieving their goals, solely by applying a sound trading plan and sticking to it. While that may sound simple, most new traders have a tendency to get caught up in their trading, and start straying from their plan, committing quite often a series of common, yet ruinous mistakes.
The following are the some of the most common mistakes committed by traders.
Mistake [1] - Over-trading
Some traders get caught up in the excitement of trading, getting a 'rush' from their trading activity. When periods arise when either the markets or their trading system do not provide any indicators to put a trade on, they get antsy. They start putting on trades based on hunches, trading only for the sake of trading. As enjoyable as trading may be for some, always remember you are in the game to make money. Trading is a method to that end, it is not an end in itself.
Mistake [2 ]- Avoiding or Abusing Stop Orders
Futures markets can be very volatile, and most traders are not able to stare at a quote feed for the entire day. Many of the markets also trade 24 hours a day now. It is almost imperative that a trader use stop orders to protect his positions. Those who do not use stops run the risk of sustaining large losses should the market move against them. These traders also have a tendency to get emotionally attached to their trades, and not exit them when they should. Stop orders solve this problem, taking the emotion out of the trade exit decision. The other mistake with stops is moving them down (or up) once the market approaches them, thinking that the market will turn around at any time. This is another sure method to increasing your losses. When you place a stop order, leave it there. You can move it closer to the market, such as in a trailing stop order, in order to protect profits, but never move it away from the market.
Mistake [3] - Trading Too Large
Every trader should always know exactly what their risk tolerance and profile is, and size their positions accordingly. This is also known as money management, and is one of the most important aspects of trading. A good money management system will increase the size of your trades as your equity increases, and decrease their size when you are in periods of drawdown and your equity is falling. A new trader who manages a few profitable trades in a row sometimes feels invincible, and starts to trade too many contracts too soon. This is a recipe for disaster. Stick to your money management plan, whether you are winning or losing.
Mistake [4] - Trading Too Many Markets
No one can be an expert on everything. In futures you do not want to be a 'jack of all trades, and master of none'. Pick a couple of markets and specialize in them. Get to know them as best you can - including their fundamentals, technicals, and trading patterns. Get a feel for them. You stand a much better chance of success if you know the market you are trading in great depth, and you cannot do that if you are trading more than a few markets at a time.
Mistake [5] - 'Living by the Tick', or Getting too Close to the Market
Unless you are trading as a scalper, which is not likely unless you are a professional, try to avoid following every single tick of the market. New traders will sometimes stare at their quote screen and follow every tick, up or down, of the position they have on. Doing so causes one to second guess their trading plan whenever the market moves a few ticks against them. This leads again to mistake number 1, which is over-trading. While you should follow your trades, try not to become enamored of monitoring every tick.
These are five of the most common mistakes made by both new and experienced traders. If you can remember them and avoid them, you are one step closer to becoming a successful trader.
Bryan Moffitt is the owner of Futures Research Corp. - a company that provides traders with valuable analysis and research to improve their trading success in the futures markets. To learn more about futures trading, sign up for a free 1 hour introductory webinar at http://www.futuresresearchcorp.com/Webinar.aspx
http://www.FuturesResearchCorp.com
Article Source: http://EzineArticles.com/?expert=Bryan_Moffitt
While new traders have the disadvantage of inexperience, there is no reason they cannot be successful in achieving their goals, solely by applying a sound trading plan and sticking to it. While that may sound simple, most new traders have a tendency to get caught up in their trading, and start straying from their plan, committing quite often a series of common, yet ruinous mistakes.
The following are the some of the most common mistakes committed by traders.
Mistake [1] - Over-trading
Some traders get caught up in the excitement of trading, getting a 'rush' from their trading activity. When periods arise when either the markets or their trading system do not provide any indicators to put a trade on, they get antsy. They start putting on trades based on hunches, trading only for the sake of trading. As enjoyable as trading may be for some, always remember you are in the game to make money. Trading is a method to that end, it is not an end in itself.
Mistake [2 ]- Avoiding or Abusing Stop Orders
Futures markets can be very volatile, and most traders are not able to stare at a quote feed for the entire day. Many of the markets also trade 24 hours a day now. It is almost imperative that a trader use stop orders to protect his positions. Those who do not use stops run the risk of sustaining large losses should the market move against them. These traders also have a tendency to get emotionally attached to their trades, and not exit them when they should. Stop orders solve this problem, taking the emotion out of the trade exit decision. The other mistake with stops is moving them down (or up) once the market approaches them, thinking that the market will turn around at any time. This is another sure method to increasing your losses. When you place a stop order, leave it there. You can move it closer to the market, such as in a trailing stop order, in order to protect profits, but never move it away from the market.
Mistake [3] - Trading Too Large
Every trader should always know exactly what their risk tolerance and profile is, and size their positions accordingly. This is also known as money management, and is one of the most important aspects of trading. A good money management system will increase the size of your trades as your equity increases, and decrease their size when you are in periods of drawdown and your equity is falling. A new trader who manages a few profitable trades in a row sometimes feels invincible, and starts to trade too many contracts too soon. This is a recipe for disaster. Stick to your money management plan, whether you are winning or losing.
Mistake [4] - Trading Too Many Markets
No one can be an expert on everything. In futures you do not want to be a 'jack of all trades, and master of none'. Pick a couple of markets and specialize in them. Get to know them as best you can - including their fundamentals, technicals, and trading patterns. Get a feel for them. You stand a much better chance of success if you know the market you are trading in great depth, and you cannot do that if you are trading more than a few markets at a time.
Mistake [5] - 'Living by the Tick', or Getting too Close to the Market
Unless you are trading as a scalper, which is not likely unless you are a professional, try to avoid following every single tick of the market. New traders will sometimes stare at their quote screen and follow every tick, up or down, of the position they have on. Doing so causes one to second guess their trading plan whenever the market moves a few ticks against them. This leads again to mistake number 1, which is over-trading. While you should follow your trades, try not to become enamored of monitoring every tick.
These are five of the most common mistakes made by both new and experienced traders. If you can remember them and avoid them, you are one step closer to becoming a successful trader.
Bryan Moffitt is the owner of Futures Research Corp. - a company that provides traders with valuable analysis and research to improve their trading success in the futures markets. To learn more about futures trading, sign up for a free 1 hour introductory webinar at http://www.futuresresearchcorp.com/Webinar.aspx
http://www.FuturesResearchCorp.com
Article Source: http://EzineArticles.com/?expert=Bryan_Moffitt
http://ezinearticles.com/?Trading-Futures---Common-Mistakes-to-Avoid-in-Order-to-Succeed&id=1694173
Posts
